If you have opinions about the subject matter of posts on this blog please share them. Do you have a story about how the system affects you at work school or home, or just in general? This is a place to share it.

Wednesday, October 9, 2013

World Economy: Still crawling way behind

The IMF released its half-yearly report on the global economic
outlook yesterday, just before its semi-annual meeting. The IMF reduced
again its forecast for global real GDP growth for this year to 2.9%, a
cut of 0.3% pts from its July forecast and lowered its forecast for 2014
to 3.6% from its forecast of 3.8% last July. It summed up the
situation for the world capitalist economy in 2013 as “global growth is still weak, its underlying dynamics are changing and the risks to the forecast remain to the downside.”

Not great then. What the IMF economists meant by ‘changing
dynamics’ was that the slowing of growth was mainly in the so-called
emerging economies, while there was a small relative pick-up in the
advanced capitalist economies. In particular, the UK economy was now
expected to achieve 1.4% real GDP growth this year, sharply up from the
IMF’s previous estimate of 0.9% last July. But the IMF pointed out that
“it would still take years for the UK economy to recover fully from the 2008 financial crisis.”
Indeed, UK real GDP would still not return to pre-crisis levels even on
this upgraded growth rate until the end of 2014, or seven years since
the crisis began. And of course, that would not be accompanied by any
rise in average real incomes of households. The average British
household will still be worse off in 2018 than in 2008 – a lost decade.

Amid much recent talk that the Eurozone has
ended its depression or double-dip recession, the IMF still expects a
contraction in real GDP of about 0.4% this year and real growth of only
1% next year – which will have little or no impact on record high
unemployment in most euro area economies. As Olivier Blanchard, the IMF’s ‘economic counsellor’, put it: “In short, the recovery from the crisis continues, albeit too slowly,”.

There is much euphoria in the UK over the IMF’s higher forecast for real GDP growth. The right-wing City AM paper lambasted the IMF for being wrong again and again and being far too pessimistic about a recovery in the UK economy. “When
the IMF came to the UK in April, it slammed the coalition’s austerity
programme (misunderstanding its true extent, in fact quite limited),
hinted at the need for more Keynesian measures and warned that George
Osborne was “playing with fire”. It appeared to back the Labour party’s
stance – and as it turns out, was utterly mistimed. The IMF’s call for a
u-turn came at exactly the moment when the economy had started to grow
again; as so often with economic forecasts, a key turning point was
completely missed…..Once again, the IMF had got it completely wrong,
just as it didn’t predict the crisis and failed to see the bubble. It
will fail again, and again, and yet we will continue to take what it
says seriously.”

And City Am
is right about the failures of IMF forecasting. The IMF may have been
too pessimistic about the UK earlier this year but it has been
consistently too optimistic about the global capitalist economy
recovering since the crisis began. Its own analysis of previous
forecasts reveals just that in its latest report. Back in October 2008,
at the depth of the Great Recession, the IMF predicted that the world
economy would return to ‘trend growth’ (the average rate of real GDP
growth in the pre-crisis period) within two years and then race ahead
(blue line in graph below). Within six months, it predicted a much
bigger fall in the global economy followed by a reasonably sharp
recovery (red line). Again that proved badly wrong. Now it reckons
that the world economy will not return to trend growth before 2018 – the
furthest out it is prepared to go (light blue line). And on the look
of the graph, the world economy will never get back there!

As for the driver of
the world economy up to now, the US, again the IMF got it all wrong.
Five years ago, it predicted that US economic growth would be some 6%
points below its previous trend in 2013 (blue line) – pretty bad. But
even that was too optimistic. It is now 11% points below its trend and
the IMF now forecasts that the gap will not be bridged or even reduced
right out to 2018 (light blue line).

In other words, the
output lost by the Great Recession and the weak recovery will never be
made up – it is a permanent waste engendered by the failure of
capitalist production.

In the light of these forecasts, maybe City AM
and other euphoric predictors of the ‘great’ UK economic recovery now
under way with Conservative-Liberal austerity policies should be more
cautious. The IMF may well be too optimistic about UK real GDP growth
reaching the heady heights of 1.9% next year. This uptick in growth has
been clearly based on the so-called services sector, particularly in
financial and business services and in a new real estate bubble being
engineered by the government’s ‘help to buy’ mortgage guarantee scheme
augmented by the flood of money coming in from rich foreigners from
Russia, Italy, Spain and Greece trying to ‘launder’ their cash by buying
London property. The productive sector of the UK economy remains in
dire straits. Productivity has collapsed and the industrial sector
remains stagnant, according to the latest figures that again
disappointed the optimists.

The profitability of UK
manufacturing companies continues to fall, according to the very latest
data and is now back at the level of 2003.

With the service sector
rate of profit unmoved, the overall net return on capital for UK
non-financial companies is still below that of 2011 and some 20% below
its peak at the end of 1997.